Entering the Pakistani power sector through tenders for the disposal of redundant, old, and defunct power plants is not for the faint-hearted, nor for those who assume that contract law operates in a straightforward, predictable fashion. While these opportunities present a lucrative prospect, the fine print is often riddled with ambiguities, hidden liabilities, and compliance pitfalls that can easily transform an attractive bid into a financial and legal quagmire. The challenge for foreign bidders is twofold: navigating a regulatory landscape that is intricate and evolving, while simultaneously outmanoeuvring the practical realities of procurement in Pakistan—delays, corruption, political interference, and shifting legal interpretations. Those who approach this market without strategic foresight and an airtight legal approach risk not only financial losses but also protracted disputes, regulatory entanglements, and, in the worst-case scenario, outright expropriation of their investment under the guise of public interest.
Bid documents for such projects are rarely drafted with the bidder’s clarity or legal security in mind. Whether issued by public sector entities, partially state-owned companies, or private corporate conglomerates, these tenders often suffer from vague definitions of asset scope, failure to delineate precise environmental and financial obligations, and, in some cases, deliberately misleading exclusions of key liabilities. The most common deficiency is the omission of clear post-bid liabilities, leaving room for the procuring entity to shift unforeseen costs onto the successful bidder after the award. Clauses that appear benign at first glance—such as indemnification for site clearance, responsibility for hazardous materials, and adherence to unspecified “relevant laws”—often conceal an open-ended exposure to regulatory penalties and unbudgeted site remediation costs. A winning bidder might assume they are simply purchasing scrap and machinery, only to discover post-award that they are also responsible for hazardous waste disposal, environmental rehabilitation, and labor law compliance that extends far beyond what was anticipated.
The financial architecture of these tenders is another minefield. Many foreign bidders make the mistake of assessing a tender solely based on the reserve price and estimated salvage value of plant components, underestimating the extensive hidden costs that arise from taxation, permit requirements, and compliance-related expenditures. A bidder unfamiliar with Pakistan’s taxation regime, for example, might fail to account for the advance tax deductions under Section 236A of the Income Tax Ordinance, which can strip a substantial percentage from the projected profit margin before operations even begin. Sales tax on goods and services is another often-overlooked factor, particularly for entities unfamiliar with Pakistan’s multi-tiered tax structure. A successful bidder may also find themselves trapped in a web of unexpected levies—municipal charges, environmental clearance fees, and licensing costs—which, if not explicitly assigned to the procuring entity in the contract, automatically fall upon the bidder. Then there is the question of working capital. Unlike construction contracts, where payments are staggered over milestones, disposal contracts in Pakistan often require full payment within a short period after contract award. The bidder must have immediate liquidity or risk forfeiting the contract, often with penalties.
Regulatory compliance is another layer of complexity. In addition to federal environmental regulations, many of these projects operate under a patchwork of provincial laws that impose their own licensing requirements. Under Section 12 of the Pakistan Environmental Protection Act (PEPA) 1997, no industrial project involving significant environmental impact can proceed without prior approval. Given that decommissioning and disposal of old power plants inherently involve potential contamination risks, bidders must be prepared for regulatory scrutiny, environmental audits, and possible delays in obtaining necessary permits. If an Environmental Impact Assessment (EIA) or Initial Environmental Examination (IEE) is required and not explicitly assigned as the procuring entity’s responsibility in the tender documents, the bidder must assume that the burden of compliance—and the associated costs—rests solely on them. These delays can be more than a mere inconvenience; they can trigger penalty clauses for non-performance, particularly if the contractual timeline does not account for bureaucratic processing times. In other words, even though government approvals are outside the bidder’s control, failure to secure them within an arbitrarily fixed timeline can still be considered a breach of contract.
Procurement risks in Pakistan are not limited to legal ambiguities and regulatory entanglements. The political and economic climate can, at any moment, render an otherwise solid contract effectively worthless. Recent interventions by Pakistani authorities in power purchase agreements have raised concerns among international investors, demonstrating that even contracts executed in full compliance with applicable laws can be subject to unilateral renegotiation or cancellation when political expediency dictates. The risk of retrospective legal action is particularly high in cases involving public sector entities, where changes in government can lead to abrupt shifts in policy. A new administration may decide to revisit past procurement decisions, citing national interest or anti-corruption measures as justification for altering contract terms post-execution. In extreme cases, this can lead to asset seizures or judicial interventions that render enforcement of contractual rights a costly and drawn-out process. Foreign bidders must account for these risks and consider the possibility that a contract legally valid today may be politically untenable tomorrow.
Anti-corruption measures in Pakistan exist on paper but do not always function in practice. While tenders for public sector projects typically include integrity pacts and declarations against corrupt practices, enforcement mechanisms are inconsistent, and bidders often face subtle pressures to “facilitate” administrative processes. Foreign entities, particularly those subject to strict anti-bribery laws in their home jurisdictions, must tread carefully. Engaging local partners to handle regulatory approvals can be a double-edged sword: while a well-connected intermediary can expedite approvals, they also expose the foreign bidder to liability if found engaging in corrupt dealings. The Competition Commission of Pakistan (CCP) and the National Accountability Bureau (NAB) have historically launched investigations into procurement fraud, bid rigging, and anti-competitive practices, sometimes years after the contracts were executed. A winning bidder who secured a contract through lawful means could still find themselves ensnared in post-facto investigations, either as a collateral victim of a broader crackdown or as a convenient scapegoat in political infighting. Careful documentation of all interactions, ensuring compliance with international anti-bribery standards, and maintaining a strict ethical firewall between bidding teams and local fixers is essential for mitigating exposure to such risks.
A prudent foreign bidder must take a multi-tiered approach to risk mitigation. First, exhaustive due diligence is non-negotiable—every contractual clause must be scrutinized for hidden liabilities, and ambiguous terms must be clarified before bid submission. Second, contractual safeguards must be built into the bid response itself; where the tender document is deficient, the bidder should condition their proposal on necessary clarifications, exclusions, or modifications. Third, expert legal counsel is indispensable—not merely for contract drafting but for ensuring compliance with tax laws, environmental regulations, and procurement rules that may not be immediately apparent. Finally, contingency planning is vital. No foreign entity should enter a Pakistani disposal tender without a clear exit strategy, a buffer for delays, and a litigation reserve in case of post-award disputes.
The Pakistani power sector is not without its opportunities, but it is also a battlefield where only the well-prepared survive. An enticing bid price or the promise of a high-margin salvage operation means nothing if the legal and financial foundations are not solid. Those who understand the regulatory terrain, anticipate the real costs, and insulate themselves against political and contractual volatility will emerge not only with a profitable contract but with their legal and financial integrity intact. Those who do not will find themselves fighting a battle they did not anticipate, in a legal landscape that seldom favours the uninformed.
Below is a breakdown of some of the most problematic clauses we, at Josh and Mak International have encountered in local Tender documentation in Pakistan, particularly those tenders about disposal of redundant, old, and defunct power plants, demonstrating the potential traps that foreign bidders must avoid. These clauses reflect the kind of drafting deficiencies, hidden costs, and legal loopholes commonly found in Pakistani procurement contracts—enough to turn an attractive deal into an operational and financial nightmare if bidders fail to scrutinize every word with an experienced legal eye.
1. “Invitation to Bid” – Nationality Restriction
Extract:
“A Bidder shall have the nationality of Pakistan or an Eligible Country. Eligible countries are those which have been notified by the Ministry of Interior, Government of Pakistan as Business Friendly Countries (BVL).”
Analysis:
This clause creates an artificial restriction on eligibility, barring bidders from jurisdictions that are not on Pakistan’s Business Visa List (BVL). The issue is that the BVL is a discretionary list, subject to changes in government policy and geopolitical considerations. A foreign entity that invests time, money, and legal resources into the bid could find itself suddenly disqualified if their country falls out of favour with the Pakistani government. Worse, this restriction may be used as a pretext to disqualify a successful foreign bidder after the bidding process if authorities choose to favour a local competitor.
2. “Employer’s Right to Annul the Bidding Process”
Extract:
“Notwithstanding Clause XX, the Employer reserves the right to annul the bidding process and reject all Bids, at any time prior to award of Contract, without thereby incurring any liability to the affected Bidders or any obligation.”
Analysis:
This is the ultimate poison pill in Pakistani procurement contracts—the employer can cancel the entire process at will, with no obligation to justify their decision. Foreign bidders may spend months preparing bid proposals, hiring legal consultants, securing local partners, and investing in feasibility studies, only to have the entire process scrapped with no recourse. This clause essentially allows the employer to favour local interests at the last minute or invite renegotiations outside of a competitive bidding process. No foreign investor should accept this risk without a significant advance agreement on compensation for bid preparation costs in case of cancellation.
3. “Bid Security”
Extract:
“The Bid Security of the highest three Bidders including the successful Bidder will be returned when the successful Bidder has furnished the required Performance Security.”
“The Bid Security may be forfeited if the Bidder withdraws his bid or fails to furnish the required Performance Security.”
Analysis:
Foreign bidders must note that bid security deposits (2% of the reserve price, which is a significant amount) will not be refunded until the winning bidder has posted performance security. This creates a liquidity trap—unsuccessful bidders cannot quickly reclaim their capital for other projects, especially if the selection process is delayed. Worse, if a foreign bidder is coerced into renegotiating terms after bid submission, any withdrawal results in an automatic forfeiture of their bid security.
4. “Performance Security”
Extract:
“The successful Bidder shall furnish to the Employer a Performance Security in the form and the amount stipulated in the Conditions of Contract, within a period of 14 days after the receipt of Letter of Acceptance.”
“Failure to comply shall constitute sufficient grounds for annulment of the award and forfeiture of the Bid Security.”
Analysis:
Foreign bidders should be wary of the short 14-day window to provide performance security, which can be a substantial financial guarantee. This deadline is unreasonably tight for international bidders, especially those requiring bank approvals or cross-border financial arrangements. The real trap? If a bidder is unable to arrange the performance security within 14 days, not only do they lose the contract, but their bid security is also forfeited—meaning they could suffer double financial losses before even starting operations.
5. “Taxes, Duties, and Liabilities”
Extract:
“The total Bid Price quoted in the Price Schedule for each Lot shall be exclusive of any incidental charges, duties, all taxes including income tax and sales tax, cesses, commissions, fees and other levies, etc., which shall be paid/borne by and/or the liability of the Bidder as per the Applicable Law in relation to the Disposal of Assets.”
Analysis:
This is a classic hidden cost trap. The reserve price looks attractive until a foreign bidder realizes that the final cost is inflated by numerous unaccounted levies. This clause effectively states that the bidder is responsible for:
- Income tax and sales tax liabilities (which may be subject to sudden government revision).
- Municipal levies, customs duties, environmental clearance fees, and possible unforeseen regulatory costs.
- Any incidental charges, which is vague and could include anything from “processing fees” to infrastructure rehabilitation costs.
Foreign companies are at particular risk here because Pakistan’s tax landscape is highly fluid, with retrospective tax impositions not uncommon. There is also a risk of double taxation if tax treaties are not clearly accounted for in the contract. A bidder who does not calculate these costs before signing the contract could see their entire profit margin wiped out.
6. “Time for Completion”
Extract:
“Time for Completion for the Disposal of Assets for the Lot is 16 Months from the Commencement Date.”
Analysis:
The 16-month completion timeline appears deceptively straightforward, but in Pakistan, where government approvals can take months (if not years), this is a disaster waiting to happen.
- If environmental approvals, dismantling permits, or customs clearances are delayed by regulatory red tape, the bidder is still liable for timely completion, meaning penalties for delay could apply—even if the delay is beyond the bidder’s control.
- The absence of a Force Majeure clause protecting the bidder from bureaucratic delays is particularly alarming.
Foreign companies unfamiliar with Pakistan’s notorious administrative inefficiencies will likely underestimate how much of the 16-month period will be lost to government inaction, corruption, or politically motivated roadblocks.
7. “Integrity Pact”
Extract:
“The Bidder shall sign and stamp the Integrity Pact provided at Schedule-XXX to Bid in the Bidding Documents for all Federal Government procurement contracts exceeding PKR ten million. Failure to provide such Integrity Pact shall make the Bid non-responsive.”
Analysis:
While this clause appears to promote anti-corruption measures, it does not guarantee a corruption-free process. Instead, it serves as a legal tool for selective enforcement, meaning the Pakistani authorities can later investigate and cancel a contract based on vague allegations of impropriety, particularly if political winds shift. Foreign bidders should assume that compliance with this clause does not protect them from unfair procurement practices but rather exposes them to scrutiny at the authorities’ convenience.
Final Thoughts – A Cautionary Tale
For a foreign company considering entry into Pakistan’s power sector via disposal tenders, the real risk is not just the known costs, but the unknown liabilities hidden within ambiguous contract clauses. Every clause dissected above represents an opportunity for:
- Regulatory exploitation.
- Sudden cost escalations.
- Contract cancellation risks that favour local interests.
Unless a bidder conducts exhaustive legal due diligence, negotiates iron-clad protections, and incorporates risk mitigation measures upfront, this tender—like many in Pakistan—can go from being a profitable venture to a financial black hole in record time.
If you are in the position of a foreign bidder, get in touch with us at [email protected] for proper due diligence of terms before bidding.
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At Josh and Mak International, we approach the law with the gravitas it deserves, understanding that every legal matter carries profound personal and ethical weight. Guided by principles of justice, fairness, and unwavering integrity, we see our role as more than advocates—we are stewards of our clients’ rights and aspirations. Our work is shaped by a commitment to excellence, meticulous attention to detail, and a deep respect for the dignity inherent in every legal challenge. With a steadfast focus on achieving equitable outcomes, we bring clarity to complexity and champion your cause with the insight and care it merits. Let us stand as your devoted partners in the pursuit of justice and peace.
Contact us at [email protected] for Legal Consultation.
https://joshandmakinternational.com/
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